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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: hueyone who wrote (125989)	12/12/2002 9:07:04 AM
From: Jim Mullens	Read Replies (5) \| Respond to of 152472

Huey- Thanks for your latest two posts which I will try to answer together. 1. You wrote->>>”Imho, however, it is very misleading to make an argument that a stock is reasonably valued while employing the two widely disparate PE definitions in the underlying analysis as you did---one PE based on QCOM’s forward pro forma earnings and the other PE based on Value Line’s trailing twelve month earnings--- which in addition to being “trailing”, I suspect are more akin to GAAP earnings. The difference between the two PE definitions you used is significant enough to take the punch out of your argument, which is dependent on these two PEs being an apples to apples comparison, which they are not.”<<< The Value Line history I used was to show the historical relationship of PEs and Earnings Growth Rates (PEG). I believe that I also referenced an old (1995?) SSB study showing the relationship of PEs, Growth rates, and Long Term Interest Rates. Both appeared to me to be in relatively the same “ball park”. I believe I previously stated that Value Line uses their own methodology for reporting earnings which EXCLUDES gains and losses from non-recurring activities and (IMO) as such more closely represents pro forma than GAAP accounting. So, I believe my analysis does provide an “apples to apples” comparison 2. You wrote->>>”"The default definition for PE, in absence of an additional definition, is the current price divided by the sum of the four preceding quarters' GAAP earnings." That is why when one clicks on Multex, Quicken, Yahoo and most financial sites, the Qualcomm PE is listed as 90 without an additional definition for the PE. “<<< What you say may well be the case. But, as I’ve said before, IMO any serious investor should consider both GAAP and pro forma earnings when evaluating the potential investment value of a company. I will admit that pro forma accounting allows for more “financial engineering” and one has to be careful that it is not being used to just “game the system”. But, if one only screens a company based on GAAP history, they may miss some wonderful investment opportunities. I’ll further admit that it’s a lot simpler and safer for the accounting/financial community to merely rely on GAAP as there is much less judgment and analysis involved than in providing both GAAP and pro forma analysis/ reporting. In my previous (38 years) work experience pro forma modeling was used extensively as our businesses were in constant flux (mergers, down sizing, organizational restructuring, etc). Pro forma analysis was a necessity in order to provide meaningful historical cost comparisons (financial restatements) to the new business reporting structure. The accountants generally cringed when the financial analysts had to explain and support their methodology to them, but as I said it was a very meaningful business requirement. 3. You wrote->>>” As I recall, and as I have posted on this thread, Qualcomm had this very problem a couple of years ago with excluding investment losses, Globalstar I believe, but including investment gains from some of their other technology investments.” <<< I agree that Qualcomm appeared to a certain degree inconsistent in its prior treatment of “recurring/ non-recurring” activities. Qualcomm, to their credit, also recognized that apparent failing and revised its reporting structure to separate Strategic Investments from Core Operations. Investors now have the ability to analyze each separately and the total company as a whole thru both GAAP and pro forma accounting reports. 4. You wrote->>>” but they (Qualcomm) still don’t include stock options expense in their reporting, and that is an important business expense at Qualcomm that shouldn’t be overlooked in my opinion. “ <<< Again, a true statement. As I recall Qualcomm has stated they will abide by the new rules when/ if as established by the SEC/ financial standards board. Qualcomm does provide their EPS reporting based on “diluted” shares outstanding. And, my financial models in the past have included escalated outstanding shares by 3% annually. Several of my question regarding options asked of Mucho have gone unanswered by him and you. Huey, I’d be interested in your response to these questions- a. I'm still having trouble with this. What is the actual "out of pocket cost" to the company? Did the company go out on the open market and by these options to give to their employees? b. Mucho- you wrote- “by recognizing these expenses as grants are made, the co is informing shareholders of the ongoing economic value transfer to mgmt. this is useful information for investors in assessing the co's value” Would it then be appropriate at the time management is including this “ongoing value transfer”- option expense on the income statement, to also inform the shareholders of the estimated increase to profits (“ongoing economic value”) of doing such in the form of increased employee productivity/ loyalty? If so, where would this entry be made on the income statement and balance sheet? Thanks for your time- Jim